Inside Wall Street: Wal-Mart going upscale
The world's largest retailer should attract more customers by partnering with American Express on prepaid cards.
You've got to hand it to Wal-Mart Stores (WMT). It has done something novel -- and somewhat classy -- for its discount shoppers. And, of course, something that should make it more profitable.
The global retailing giant wants to offer its bargain-oriented core customers a shot at upward mobility by giving them entry into the world of nonbank debit cards. In partnering with blue-chip American Express (AXP), Wal-Mart is giving a big part of its low-income customers who shun banks access to convenient spending through prepaid cards.
The cards work like debit cards, although with the AmEx-Wal-Mart Bluebird cards, you don't need money in the bank to have one. You load up the card with cash and then use it like a debit card. The card makes it easier for people without bank or checking accounts to go shopping.
The world of nonbanking prepaid-card customers represents a $45 billion market, according to some financial advisory groups, which Wal-Mart could tap to its advantage. For Wal-Mart, it's practically a new business waiting to be profitably developed.
American Express and Wal-Mart have provided little details about their partnership, so Wall Street has yet to estimate what it means to the top and bottom lines of both companies. But in a real sense, what it means for both is an additional market and new customers.
Little wonder, then, that shares of Wal-Mart look like they are on a steady escalator upward, driven not only by the company's impressive performance in its latest quarter but enhanced by the emergence of new market opportunities.
Also adding to the increasingly positive Wal-Mart picture is its decision to provide same-day delivery services for its customers from its neighborhood stores, which is a direct challenge to Amazon's (AMZN) treasured territory -- and a measured expansion into e-commerce.
Wal-Mart's stock rose to a new high of $77.14 on Monday, way up from $57 not too long ago -- on April 24, 2012. Some analysts see the stock gaining another 10 to 20 points in 12 months, even before more specifics are announced about the prepaid cards.
Analyst Robert S. Drbul of Barclays Capital, who rates Wal-Mart "overweight," notes that the company continues to drive growth, leverage and returns "with a new focus on momentum, discipline and investment." He expects 2013 to be another growth year with sales rising 5% to 7%, based on square footage increase of 3% to 4%, which implies $23 billion to $33 billion in incremental sales and 36 to 40 million new square feet of store space.
One of Wal-Mart's latest innovative moves is the small store format. These stores are smaller in size and square footage, but show very good customer traffic. "Neighborhood markets are a very productive format, with comps (comparative sales) up 5% in the first half of 2012, approximately twice that of the rest of the U.S. store fleet," Drbul points out.
Wal-Mart continues to gain points on Wall Street because of its efforts to please millions of customers with its steady value pricing, as well as efforts to reassure its shareholders by providing solid returns.
"We expect Wal-Mart to pursue a balanced approach toward increasing shareholder value through its sustainable long-term growth in its proven business model," says Drbul. And "we continue to be impressed with its disciplined expense management and strategies in place to maintain positive comps," he adds.
The analyst, who has a 12-month price target of $80 to $85 a share for Wal-Mart, is confident the company has the potential to build on current momentum in positive traffic trends and leverage expenses to offset any gross margin pressure.
The price target of $85 is about 15 times his 2013 earnings estimate of $5.20 a share, on sales of $498 billion, up from estimated 2012 profits of $4.90 a share on $474.2 billion. For 2014, he forecasts earnings of $5.85 on sales of $523.5 billion.
Analyst David A. Schick of investment firm Stifel Nicolaus, who rates Wal-Mart a "buy," has a price target of $83 a share. He says it could potentially be trading at 15 times estimated earnings of $6 a share a year from now -- that is, $90 a share.
I don't know of any employer that isn't watching their bottom line. Every business has something the public won't like. Same old story. You can advance with Wal-Mart if you apply yourself.
Just what does John Q Public expect anymore? Go out and vote if you're serious.
this is a great disguise...classy? of course not! is a business decision that would benefit both walmart and amex...how? by the amount of fees they are going to be racking in from "customers" that would pay a "small convenience fee" everytime they load money into the card.... stick to cash anyway or if you need a card and have direct deposit, find a credit union that would not charge you fees on a checking/debit account as long as you have direct deposit or keep a small balance in the account
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The company plans to close stores and lay off employees, and says it needs to make some deeper changes.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.